PBS changes put the squeeze on Sigma
Tough trading and reduced government subsidies continue to batter chemist retailers' earnings.
Sigma posted a first-half profit of $16.3 million, down 38 per cent from the previous corresponding period. The company blamed recent changes to the Pharmaceutical Benefits Scheme and one-off costs relating to the collapse of its Harrisons chain for the fall.
Its revenue was up 3.1 per cent to $1.5 billion.
About 70 per cent of Sigma's revenue comes from the distribution of government-subsidised drugs to its chemist network, which includes the Amcal and Guardian chemist chains.
Recent changes to the PBS have improved affordability of medicines to patients but have been bad news for companies, which have seen their profit margins squeezed. Sigma said its PBS segment was in danger of moving into negative territory in the current financial year.
When asked by analysts whether it had made more provisions for bad debts, chief executive Mark Hooper said they were not unnecessary.
"I know there's a view out there that this is more of a systemic issue," he said. He doubted there were any other bad debts, but: "We'd be naive to say we don't think there's an increased systemic risk to some extent."
He added that accounting standards did not allow for a provision based on general risk. "Certainly, the industry is going through more challenging times, so there is a heightened focus on credit issues."
It has been a turbulent few years for Sigma, whose share price is below that of 10 years ago.
Mr Hooper said he had spoken to the incoming Coalition government to improve consultation with the industry, but he acknowledged that the push by governments to make medicines more affordable was inevitable. "Our long-term outlook has always been about trying to develop a business model that is less reliant on the PBS," he said.
UBS Healthcare analyst Andrew Goodsall said Sigma's results were weak but expected.
"The industry tells us there is still a high risk of bad debts," he said. "Unfortunately, the community pharmacy sector is under a lot of pressure. PBS is growing by volume, but not price."
Sigma shares lifted 0.8 per cent to close at 64¢.
Frequently Asked Questions about this Article…
Sigma reported a first-half profit of $16.3 million, down 38% from the prior corresponding period. The company attributed the fall mainly to recent changes to the Pharmaceutical Benefits Scheme (PBS) and one-off costs linked to the collapse of its Harrisons chain.
Sigma’s revenue rose 3.1% to $1.5 billion. About 70% of that revenue comes from distributing government‑subsidised medicines through its chemist network, which includes the Amcal and Guardian chains.
Recent PBS changes have made medicines more affordable for patients but squeezed profit margins for companies. Sigma warned its PBS segment could move into negative territory in the current financial year, reflecting margin pressure from those reforms.
Analysts have raised concerns about Sigma’s ability to withstand bad debts. CEO Mark Hooper said the company’s provisions for bad debts were not unnecessary, that he doubted there were many other bad debts but acknowledged an increased systemic risk, and noted accounting rules limit provisions based on general risk.
UBS healthcare analyst Andrew Goodsall described Sigma’s results as weak but expected. He highlighted a high risk of bad debts across the industry and said the community pharmacy sector is under a lot of pressure, with PBS volumes growing but not prices.
The article says Sigma has had a turbulent few years, with its share price trading below the level of 10 years ago. On the day reported, Sigma shares rose 0.8% to close at 64 cents.
Sigma’s CEO said the company has long aimed to develop a business model that is less reliant on the PBS. He also said he has engaged with the incoming Coalition government to improve industry consultation, while acknowledging the government push to make medicines more affordable is likely to continue.
Based on the article, investors should watch trends in Sigma’s PBS segment profitability, any changes to bad‑debt provisions or credit exposure, government policy on the PBS, the resolution of one‑off costs (like the Harrisons fallout), revenue growth, and share‑price movements—all factors that directly affected the company’s recent results.
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